1. Monetary and fiscal policy and its impact on business decision making2. Open economy macroeconomics-Mundell –Fleming Model and its application

FISCAL AND MONETARY POLICY IN INDIA AND ITS IMPACT ON Business Decision Making.

What is monetary policy?Monetary policy is the management of money supply and interest by central banks to influence prices and employment. Monetary policy works through expansion or contraction of investment consumption expenditure. Monetary policy is the process by which the government, central bank (RBI in India), or monetary authority of a country controls 1. The supply of money

2. Availability of money 3. Cost of money or the rate of interest, in order to attain a set of objective oriented towards the growth and stability of the economy. Monetary theory provides insight into how to craft optimal monetary policy.

Monetary policy is referred to as either being an expansionary policy, or a contractionary policy, where an expansionary policy increases the total supply of money in the economy, and a contractionary policy decreases the total money supply. Expansionary policy is traditionally used to combat unemployment in a recession by lowering interest rates, while contractionary policy involves raising interest rates in order to combat inflation. Monetary policy is contrasted with fiscal policy, which refers to government borrowing, spending and taxation Why it is needed?

What monetary policy – at its best – can deliver is low and stable inflation, and thereby reduces the volatility of the business cycle. When inflationary pressures build up, it is monetary policy only which raises the short-term interest rate (the policy rate), which raises real rates across the economy and squeezes consumption and investment. The pain is not concentrated at a few points, as is the case with government interventions in commodity markets. Monetary policy in India underwent significant changes in the 1990sas the Indian Economy became increasing open and financial sector reforms were put in place. In the 1980s, monetary policy was geared towards controlling the quantum, cost and directions of credit flow in the economy. The quantity variables dominated as the transmission Channel of monetary policy. Reforms during the 1990s enhanced the sensitivity of price signals from the central bank, making interestrates the increasingly Dominant transmission channel of monetary policy in India. WHEN WERE MONETARY POLICIES INTRODUCED?

Monetary policy is primarily associated with interest rate and credit. For many centuries there were only two forms of monetary policy: (i) Decisions about coinage
(ii)Decisions to print paper money to create credit. Interest rates, while now thought of as part of monetary authority, were not generally coordinated with the other forms of monetary policy during this time. Monetary policy was seen as an executive decision, and was generally in the hands of the authority with seignior age, or the power to coin. With the advent of larger trading networks came the ability to set the price between gold and silver, and the price of the local currency to foreign currencies. This official price could be enforced by law, even if it varied from the market price. With the creation of the Bank of England in 1694, which acquired their responsibility to print notes and back them with gold, the idea of monetary policy as independent of executive action began to be established. The goal of monetary policy was to maintain the value of the coinage, print notes which would trade at par to specie, and prevent coins from leaving circulation. The establishment of central banks by industrializing nations was associated then with the desire to maintain the nation's peg to the gold standard, and to trade in an arrow band with other gold-backed currencies. To accomplish this end, central banks as part of the gold standard began setting the interest rates that they...

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The power of Monetary and FiscalPolicy on the Economy
I. The US government plays an important role on the economy as a regulator of specific industries. It is also responsible for managing the overall pace of economic activity, seeking to maintain high levels of employment and steady prices. To achieve these goals, the government has two fundamental tools that are necessary to help them make importantdecision to keep the economy under control.
II. Fiscal and Monetarypolicies are the two most powerful tools that the government uses in order to stabilize and regulate the nation’s economy.
a. Fiscalpolicy relates to the impact of government spending and tax on aggregate demand and the economy.
b. Monetarypolicy is control by the Federal Reserve Bank one of the ways that the U.S. government attempts to control the economy
III. The government and the Fed use fiscal and monetarypolicies combined to influence the direction of the economy and meet economic goals by:
a. Helping struggling businesses save money.
b. Releasing money in the economy to improve expenditures.
c. Decreasing taxes
IV. Monetary and fiscal...

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BUSINESS IN THE INTERNATIONAL ECONOMY
ASSIGNMENT – 1
PART – A
1. If demand price elasticity measures 5,this implies that consumers would:
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2. Economic profit is:
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3. In the long run, a monopolistic competitive firm will operate at a price that:
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4. Which of the following would NOT be considered an example of foreign direct investment (FDI)?
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5. In terms of internationalbusiness, market globalization can be viewed as a ------------.
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6. Which of the following statements is true about the firm-level consequence of market globalization?
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7. Peter, a graduate student from Michigan, ordered a notebook from Opus Inc., an American MNC manufacturing and selling computers and related products. The notebook that Peter ordered from Michigan was assembled in Opus ‘factory in Taipei. This exemplifies the ----------- stage in the international value chain.
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8. A born global firm is defined as -------------.
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9. Which of the following is characteristic of collectivist societies?
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10. Titania is a country characterized by a high-context culture. This implies that ---------.
Ans:
PART – B
a. Discuss the impact of market globalization on consumer lifestyles and preferences around the world. Provide examples to illustrate your answer?...

...According to the Mundell-Fleming, what constraints may free capital movements place on monetarypolicy?
In this essay I will be discussing the way in which free capital flows can cause constraints on monetarypolicies. I will be looking at the balance of payments and how when it is applied to the Keynesian IS/LM model produces the Mundell - Flemingmodel. The Mundell - Flemingmodel shows the relationship between exchange rates and national income. Additionally, to further investigate this situation I will be looking into the ways in which monetarypolicies behave according to various exchange rate schemes, namely fixed and floating exchange rates.
The balance of payments consists of the current account and the capital account. In theory, these two accounts should balance. The current account concerns the imports and exports of goods and services. The largest component of the current account is net export and therefore the current account balance, which is the difference between exports and imports, moves with net exports. Exports are mainly affected by foreign economic conditions, for instance, when incomes rise in foreign countries, demand for exports will increase, therefore exports are exogenous. Imports however depend on domestic income, for...

...the ideal currency would be exchange rate stability, full financial integration and monetary independence. These three goals identified as the “Impossible Trinity”, meaning that only two of them could be achieved simultaneously thus abandoning the third (Joshi, 2003). The Mundell-Flemingmodel is fundamental in illustrating this relationship between these three goals.
Exchange rate stability requires a country to have a relationship with other major currencies that is fixed in nature, so that traders and investors could be relatively certain of the foreign value of each currency in the present and near future (Eitemn, Stonehill, & Michael, 2010). The opposite if this is of course a local currency whose value is determined by the market. Full financial integration where there is complete freedom of movement of funds from one country and one currency to another, as opposed to having barriers prohibiting this movement. Monetary independence allows an individual country to set its own national economic policies particularly those pertaining to inflation control, full employment and combating recession. (Eitemn, Stonehill, & Michael, 2010)
As stated above “Impossible Trinity” states that a country may simultaneously choose any two, but not all of the three policy goals this is viewed based on the Mundell-FlemingModel in the context of...

...﻿Summary on the Impact of fiscal and monetarypolicy on business organizations and their activities.
Fiscalpolicy
Government influence the economy by changing the level and types of taxes, the extent and composition of spending, and degree and form of borrowing.
Lower taxes mean more disposable income for consumers and more cash for businesses to invest in jobs and equipment. Stimulus-spending programs, which are short-term in nature and often involve infrastructure projects, can also help drive business demand by creating short-term jobs. By creating short time jobs government bust demand for other business. For example: If government is launching project to build a new bridge, it creates short time jobs for business who will be building this bridge, but also it need concrede and metal to build it. So it orders these materials from local business and increase their profitability. Local business to meet the new demand will need to employ more workers, this will increase overall disposable income in the economy and will help to grow other business too.
If government is increasing income or consumption taxes usually mean less disposable income, which, over time, can decelerate business activity. It simply mean that people have less money to spend and...

...MONETARYPOLICY OF BANGLADESH AND ITS IMPACT ON ECONOMYMonetarypolicy is concerned with the measures taken to control the supply of money, the cost and availability of credit. Further, it also deals with the distribution of credit between the uses and the users, the lending and borrowing rates of the banks. In a developing country like ours the monetarypolicy has been effectively used as a tool for overcoming depression and inflation. As Prof R. Prebisch writes “The time has come to formulate a monetarypolicy which meets the requirement of economic developments which fit in to its framework perfectly.” Along with the economic growth the monetarypolicy has also to ensure price stability, as excessive inflation has an adverse distribution effect and hinders the economic development.
To understand the monetarypolicy of Bangladesh it is important to understand the objectives or goals, targets and instruments of monetarypolicy. The goals refer to the objective which may be price stability or economic growth. Whereas the targets refer to the variables such as supply of money, bank credits and interest rates. The instrument ate the changes in supply of currency, bank rates and other interest rates, open market operation, changes in...

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